IMF Wants Pakistan To Cut Oil Subsidies In Budget

Pakistan has to focus on decreasing its oil subsidies in the coming 2008-09 fiscal year to cut its fiscal and current account deficits, senior representative at the IMF mission in Pakistan Henri Lorie, said on Friday.

Lorie said it should take investor-friendly steps to help drive growth, but he feared a turbulent political climate had stalled policy makers.

He said one of the most pressing requirements, because of high global commodity prices, was to reduce domestic demand for oil to bring down the country’s large current account deficit.

Lorie said lowering subsidies would encourage users to reduce oil and energy use, which will in turn reduce imports.

Long-term pressures: While the higher consumer prices would increase inflation in the short term, the reduction in subsidies would reduce long term inflationary pressures by reducing government borrowing, one of the main drivers in monetary growth.

Government expenditure: Lorie said the government also needed to reduce its expenditure in the upcoming budget.